Jeffrey Thompson’s Chartered Health Plan had a very bad 2011

It’s bad enough for businessman Jeffrey E. Thompson that he’s under investigation by federal authorities. What’s worse is that his health-care firm just wrapped up a particularly dismal year.

A recent annual filing with the Department of Insurance, Securities and Banking shows that D.C. Chartered Health Plan recorded a $14.9 million operating loss in 2011, even after accounting for a $7.5 million payment from the District to settle a billing dispute.

Chartered is the largest of two companies that manage health care for low-income District residents under government-funded programs. As I’ve earlier noted, what was quite a lucrative business five years ago has become an increasingly marginal proposition since Thompson settled a lawsuit filed by the District accusing him of overbilling.

While Chartered’s premium revenue reached historic highs last year, taking in $355.5 million in local and federal health care funds, the downside of the risky business of insuring the poor bit Chartered hard, leading to a $23.1 million underwriting loss.

Chartered CEO Maynard G. McAlpin said in a statement that, despite the recent setbacks, the company “will continue to provide a full range of much-needed health care services to the most vulnerable residents of the city, just as it has for the past 25 years.”

McAlpin said the rates paid by District “do not fully cover the actual cost of claims, the company’s operating costs and the 2 percent tax on premiums the District began imposing in 2010” — a tax that cost the company $7.2 million last year. He also cited increased prescription drug costs, a rising number of emergency room visits, and a shift of enrollees from the city-paid Alliance program to the largely federal Medicaid program for driving up costs.

Note that it’s generally difficult to make money in this type of business; the city’s other managed-care contractor, Unison Health Plan, reported a loss of $22.6 million $15.1 million on $180 million in 2011 revenues.

But last year’s figures represent Chartered’s worst financial performance since 1998, before Thompson owned the firm, when it lost $4.2 million on revenue of $36.2 million. Its parent company was in bankruptcy proceedings at the time, and two years later Thompson purchased it in a fire sale for $4 million.

Now Thompson appears to be pondering a fire sale of his own, with the company confirming on Monday that McAlpin has notified regulators that he is pursuing a purchase from Thompson, who resigned from the board of directors last week.

With Thompson under a microscope after the March 2 raids, Chartered’s continued hold on the District managed-care contract — the whole of its business — is seriously in doubt. Unloading the company might be the only way to preserve any of its value, and with its recent financial performance this dismal, it’s worth wondering what value it might have at all.

The good-ish news is that last year’s $7.5 million settlement addressed one of Chartered’s biggest cost drivers: A court-mandated increase in dental rates led to more providers setting up in the District and hence more families using their services. But Chartered’s payments from the city weren’t adjusted upward to reflect that; a new contract, set to go into effect next May, will reflect the new, higher dental rates. (Note the settlement came at a hefty price: The report indicated Chartered paid over $1 million to the law firm that represented it in its dispute over the dental rates.)

Another interesting tidbit in the report is that Chartered has been released as a guarantor of a $13.1 million bank loan Thompson took out in 2008 to settle the overbilling lawsuit. While the report says the change was made for accounting reasons, it also is likely to ease a sale of the company.

And a postscript: as noted byJim McElhatton of the Washington Times today, Chartered’s annual report makes a fuller disclosure of Thompson’s holdings than in previous reports. Beside his interests in Chartered’s parent, D.C. Healthcare Systems Inc., and his accounting firm, the report shows Thompson as owner of several firms that have been frequent political donors — often via money order:

The Thompson business empire.
(D.C. Department of Insurance, Securities and Banking)
It’s not a huge revelation, considering that previously disclosed corporate registration documents for the companies prominently featured Thompson’s name, but let there now be no doubt about the reach of the Thompson empire.

UPDATE, 8:45 P.M.: The post has been updated with a statement from McAlpin. Here is the statement in full:

As the largest Medicaid managed care organization in the District of Columbia, DC Chartered Health Plan facilitates care for more than 110,000 low-income Washington residents, opening doors to good health for those most at risk and who would otherwise have only limited access to the care they need.

The financial statement filed today reaffirms that Chartered will continue to provide a full range of much-needed health care services to the most vulnerable residents of the city, just as it has for the past 25 years.

Chartered’s medical and hospital expenses in 2011 totaled $341.4 million, representing a $74.8 million or 28 percent increase over 2010.

The premiums the District currently pays Chartered, while substantially improved over 2010, do not fully cover the actual cost of claims, the company’s operating costs and the 2 percent tax on premiums the District began imposing in 2010. That tax cost Chartered $7.2 million in 2011.

In addition, increasing costs for prescription drugs and dental services and an increase in emergency room visits over the last few years have also had a negative impact on the company’s financial position. Also contributing to the cost pressures was the District’s decision in 2010 to transfer 20,000 members from the DC Healthcare Alliance, a program for poor residents not otherwise eligible for Medicaid, into the more comprehensive and more costly Medicaid program.

As a result of these and other factors, Chartered lost $15 million in 2011, compared with a $1.2 million profit the year before.

Chartered’s focus on solving the community’s health and social challenges dates back to 1986 when it became the first managed care organization in the District. Since then, the organization has become a go-to community resource, going beyond traditional health care services to help members find employment, housing and other services they need.

Good health requires caring about the ‘whole person’ – something Chartered does and will continue to do every day.

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